Foreword: This is quite possibly the worst asset protection trust disaster of all time, with the trust being deemed the alter ego of the settlor, the attorney being sued for Civil RICO, and then both the attorney and his client being indicted for perjury, obstruction of justice, and conspiracy to obstruct justice. Plus, the Court holds that local law applies to whether a self-settled spendthrift trust will be recognized for creditor purposes, and not the law of the jurisdiction where the trust is formed, which may have dramatic repercussions for asset protection trusts.

Dexia Credit Local ("Dexia") was the guarantor on certain bonds issued by a Chicago hospital controlled by Peter Rogan ("Rogan").

The hospital engaged in Medicare and Medicaid fraud, which eventually lead to Dexia having to pay $55 million to the hospital's bondholders. Dexia then sued Rogan and two Rogan-controlled companies. Rogan did not defend, and in May 1997 a default judgment with interest and punitive damages was entered at $124 million.

Five years prior to the default, in 1992, Rogan established three domestic trusts for the benefit of his three children. Later, in 1997 (the year the default was entered), Rogan set up three Belize-based trusts for each child.

Initially, the domestic trusts were funded with interests in Rogan's business entities. In 1994, the trusts received $4 million from the sale of a Rogan business. From 1994 to 1997, the domestic trusts received distributions from Rogan's businesses.

In 2002, the U.S. government sued Rogan under the False Claims Act, alleging that Rogan was the leader of a kickback scheme involving two physicians, and that the scheme ran from 1995 through 2000 and involved $19 million in false Medicare and Medicaid claims.

The trial court found that "the Rogan children's trusts received significant distributions from the entities managing the hospital's operations, whose operations were in turn controlled by Peter Rogan." The court further found that "the children's trusts have been funded, in significant part, with assets that fairly may be considered the proceeds of fraud."

While even Dexia conceded that some of the money in the children's trusts were clean moneys in the sense that they did not derive from wrongful conduct, the children's trusts were used by Rogan as slush funds to move cash out of the way of creditors, with the complicity of Rogan's personal attorney, Fred Cuppy, who served as the trustee of the Rogan children's trusts.

Cuppy caused the trusts to transfer $1.35 million – ostensibly as a loan – to one of Rogan's limited partnerships, which limited partnership then immediately transferred $1.2 million to Rogan to pay off a promissory note that Rogan claim that he was owed by the limited partnership (though the note was never found, if it ever existed).

Cuppy also helped Rogan to use the trusts to "invest" money in various Rogan-controlled enterprises, as a conduit to get money to Rogan.

The Court entered a slew of orders to stop Rogan's transfers of funds, and to freeze the money in the Rogan children's trusts. This caused the children to appear through their attorneys and object that the court lacked jurisdiction and venue to compel them to do anything.

The Court dismissed the children's arguments by noting that it had the power to restrain any person reasonably believed to be holding assets for the benefit of the debtor, including issuing injunctions against the children's trusts.

To pierce the veil of the trusts, Dexia must show that they and Rogan have such a unity of interest that their separate personalities no longer exist, and that there are circumstances such that continuing to recognize their separateness would sanction a fraud or promote injustice. * * * A trust may be considered to be the alter ego of a judgment debtor if the debtor used the trust's assets for his own benefit and exercised authority over the trust's assets. * * * The factors considered include